Market-Making

In North Sea Turbine Deal, Siemens, Vattenfall Target Subsidies

  • Why it matters

    Why it matters

    The development of Germany’s alternative energy industry is still supported largely by government subsidies.

  • Facts

    Facts

    • Siemens, Vattenfall and a Munich operator agreed to build a €1.3 billion North Sea windpark.
    • The investors agreed to approve the project after Germany adopted more generous subsidies.
    • The German subsidies have created a glut of electricity, causing wholesale prices to fall by half.
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    Audio

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A wind park off the German coast in the North Sea. Source: DPA
A wind park off the German coast in the North Sea. Source: DPA

 

A €1.2 billion ($1.6 billion) project to build 72 wind turbines off the coast of North Sea resort island Sylt by Siemens, Munich City Utilities and Swedish energy producer Vattenfall showed again this week how Berlin’s government policymakers, not market demand, are driving the alternative energy industry in northern Europe.

Germany’s so-called “Energiewende’’ or transformation aims to phase out nuclear power by 2022 and generate 80 percent of energy from renewables by 2050. The transition began in the early 2000s and got a big boost after the March 2011 meltdown of a nuclear plant in Fukushima, Japan. The accident prompted the German chancellor, Angela Merkel, a trained physicist, to phase out Germany’s stable of nuclear power plants.

Since then, every change in Germany’s subsidy rules to build wind and solar energy production has directly affected investment behavior.

On August 1, a change in Germany’s renewable energy law, which stipulates energy production targets, efficiency goals and financing rules, took effect, a decisive factor for Vattenfall to start building the wind park.

Investment in renewable energy  in Germany amounted to €169 billion through 2013, and is dependent on tax levies on consumers and companies. Under the updated energy law, offshore wind parks will get a higher subsidy in their first years of operation.

A wind park owner will now receive €0.15 to €0.19 per kilowatt-hour of electricty produced from €0.13 and 0.15 previously.

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